I’m heading into 2026 more encouraged than concerned.
Yes, the economy has slowed. 2025 was quieter than many expected. But slow doesn’t mean stalled, and in the lower middle market, slower environments tend to reward the right behaviors. They favor discipline, clarity, and operators who know their businesses at a granular level.
From where I sit, 2026 looks less like a pause and more like a reset. Here are a few trends I’m watching closely.
1. Operational excellence becomes the primary growth engine
When top-line growth is harder to come by, the best businesses find it internally.
In 2026, I expect more value to be created through:
- Better throughput and scheduling
- Pricing discipline and customer mix optimization
- Working capital improvements
Industrial companies that understand how work actually moves through their shops will outperform those still relying on volume to cover inefficiencies. Ultimately what drives valuation is less about revenue growth and more about operational discipline.
2. Strong fundamentals in industrials continue to attract capital
Despite the noise, capital is still very interested in industrial businesses, especially those tied to domestic manufacturing, infrastructure, and specialized services.
What’s changed isn’t interest. It’s selectivity. Buyers are leaning into businesses with:
- Technical differentiation
- Niche expertise
- Repeatable processes
For owners who’ve invested in building durable fundamentals, 2026 could be a very good year. These are the businesses that still command healthy multiples, even in choppier markets.
3. Quality leadership teams are separating from the pack
One of the healthiest trends I see is increased focus on leadership depth.
In softer markets, teams matter more than ever. Businesses with clear governance, strong teams, and consistent operating rhythms move faster.
In 2026, I expect leadership development and organizational clarity to be a real source of valuation differentiation, not just a “nice to have.” Buyers quietly price in leadership risk, and it shows up directly in multiples.
4. Value creation plans are getting more practical
The days of relying on multiple expansion or aggressive growth assumptions are fading. That’s not a bad thing.
Investors are building value creation plans around what they can control:
- Margin expansion through process improvement
- Commercial discipline instead of discounting
- Systems that reduce dependence on any one person
This shift is making partnerships between owners and investors more grounded and more durable. Investors are rewarding simple, repeatable execution over ambitious slide decks.
5. Owners are not rushing exits
One of the most positive signals I see is how many business owners are using this period to strengthen their companies, not force transactions.
In 2026, I expect more owners to:
- Professionalize operations
- Clarify succession paths
- Reduce founder dependence
- Improve visibility into financial and operational performance
Whether that leads to a sale or continued ownership, the business will be stronger. Deal-readying isn’t about rushing to sell. It’s about building optionality. Owners who clean up financials, document processes, and strengthen leadership benches ahead of time consistently see faster diligence, fewer re-trades, and better negotiating leverage when a transaction opportunity appears.
Looking ahead
2026 doesn’t feel like a year to sit on the sidelines. It feels like a year to build quietly and deliberately.
The lower middle market has always rewarded people who focus on fundamentals, discipline, and long-term thinking. In that sense, the environment ahead isn’t a headwind. It’s an advantage for those willing to do the work.
Personally, I have some big things on the horizon that I can’t wait to share with you. More to come as we launch into 2026.
